A2 OCR Economics (Market Structure) - Personal use.

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Fixed costs. These are costs that have to paid for by a business even if no output is being produced. For a service sector activity such as transport, these costs have to be pad irrespective of whether vehicles are being used. E.g. Rent, Interest paid on loans. As more output is produced, or as vehicles are used more, then total fixed costs can be spread out across a business.

Fixed Costs: refer to costs that are independent of out produced.

Variable costs. These costs vary directly with the level output. For transport firms, these costs increase as vehicles are used more intensively. The most common examples are labour and fuel; for a manufacturing business, raw material costs tend to be an important variable cost item.

Variable Costs: refer to costs that are directly related to the level of output produced.

The total costs of a firm refer to the overall cost of producing a particular output or level of service.


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